Discussion
Which of the following will result into sources of funds ?
(i) Increase in current assets
(ii) Decrease in current assets
(iii) Increase in current liabilities
(iv) Decrease in current liabilities
Codes :
Answer: B
A source of funds comes from a decrease in current assets and an increase in current liabilities, so the pair (ii) and (iii) is correct. When a current asset such as stock or debtors falls, cash is released for use elsewhere. When a current liability such as creditors rises, the firm has financed itself from suppliers, which also provides funds.
An increase in current assets and a decrease in current liabilities are the reverse: they are uses of funds because cash is tied up in stock and debtors or paid out to settle creditors. Hence (i) and (iv), (i) and (iii) and (ii) and (iv) each include at least one use of funds.
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